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Edison Partners’ Chris Sugden: ‘With growth equity, dogs are already eating the dog food’

As part of an ongoing series, we talk to professional investors in the fintech space to get a feel for what’s on their radar screen.

This week’s guest on the Tearsheet podcast is Chris Sugden, managing partner at Edison Partners, a Princeton NJ growth equity firm that invests in companies generating revenues of $5 to $20 million. After 31 years in the business, Edison is on its eighth fund. Chris leads the firm’s activity in fintech and was previously an entrepreneur in the billing and payment space.

Sugden joins us today on the Tearsheet podcast to discuss the role growth equity plays in the fintech ecosystem. We get the lowdown on his firm’s portfolio which includes investments like early forex leader Gain Capital, vertical payments player PHX, and personal finance manager MoneyLion. Lastly, we talk about where Sugden and Edison are looking to make fintech investments in the future.

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Finding a unique fintech proposition
At the growth equity stage, we’re thinking about the dogs eating the dog food. There’s a live product and we don’t need to make a lot of guesses about adoption. We do need to make guesses about execution and market size and whether this is a product or a company.

We think we’ve carved out something that’s unique in fintech. Growth equity is finally a thing, as it’s become an asset class over the past three or four years. Back in 2006, we called what we do “expansion capital”, but that was a bit confusing. All capital is for expansion. As we define it, growth equity is really a revenue filter — we look to invest in companies with revenue run rates between $5 million and $20 million. We also look for companies that haven’t raised a whole lot of money before we come in.

How does growth equity play out in fintech?
We find ourselves searching for areas where you can gain traction without a tremendous amounts of money. In many cases, that means avoiding spaces that get hyped up, like mobile payments. We’ve looked at a lot of mobile payment deals, but because of their platform nature and the fact that dual-sided marketplaces need liquidity to transact, they require a fair amount of capital. So, these deals tend to be trickier for us to find entrepreneurs who don’t need a lot of outside capital to get their revenue run rates going and growing.

So, in fintech, you’ll see us doing more enterprise-like deals targeting banks, brokerage, and wealth management, as opposed to consumer-type applications.

What startups need to understand about funding
The biggest lesson I’ve learned as an entrepreneur is that money can solve scale but doesn’t solve hard problems or create innovation. The pitch where an entrepreneur claims that if he had a little money, he could make a lot more revenue — well, that’s not really true at the smaller end. One of the biggest tests is what the money is going to be used for. Does the entrepreneur really understand the business model and the revenue levers? When I sit with an entrepreneur, if I don’t understand from them customer acquisition costs, lifetime value and gross margin and contribution margin, it tells you a lot about how the CEO will think about using capital.

 

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William Mills’ Scott Mills: ‘We have to think about how technology is consumed’

Scott Mills has fintech PR in his blood. Along with his dad and his brother, Mills has built William Mills into the largest independent PR and marketing firm in the financial industry. The 40-year old firm is based in Atlanta and has found a niche for itself by helping companies sell technology into banks.

On this edition of the Tearsheet podcast, we talked about how this class of fintech companies is different, primarily because today’s financial technology is ending up in the hands of the end consumer. In other words, Mills has seen fintech move from business-to-business — where financial technology ended up on inside a bank — to business-to-business-to-customer and that’s created unique challenges for young firms to elevate their visibility and acquire new customers.

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Below are highlights, edited for clarity, from the episode.

The evolving market for fintech
“When I use the term ‘fintech’, it can refer to those companies who provide technology to financial institutions, like FIS, Jack Henry, or Sunguard. Or, it can mean, like the media tends to use it, young innovative companies that want to peel business away from financial institutions with marketplace lending or small business, small dollar lending.

What I find interesting is for traditional fintech companies, they’ve been around for a long time helping financial institutions automate something or do something better, like decreasing fraud or increasing cross-sell. What’s happened is that we’re having to think through this technology because it’s now ending up in the hands of the customer. Where fintech for a lot of us was the B2B industry, it’s now more B2B2C. We have to think about how the technology is consumed.”

How marketing and PR has had to change
“Traditional fintech firms have had to go out and get talent from places like Google and Amazon. Our clients have elevated what they talk about internally and with their customers, with more of an appreciation on user design and customer experience. It’s an arms race in terms of being able to make your stuff easier to use.

Firms need to make sure they’re addressing the different audiences that will influence their success. It could be bank consultants that are often involved in technology buying decisions. It might be ensuring that a firm has enough talent coming in. Do I need to do something local so people know we have a great place to work? Is it industry analysts, like Mercator or IDC, who have influence? Should I work with state banking associations or national ones? All these things are part of the fintech company’s marketing toolbox.”

 

Defining success with PR
“It’s really up to a specific company and where they’re up to in their lifecycle. Views are easy to measure, but aren’t the most important thing. For example, I can get an article in a really nice publication that few target clients read. I can deliver on a number but not on the impact. Some clients use scorecards, but few do.

Generally, we want our clients to get famous for something. It will happen in a PR program that publishes news that shows we’re consistently making progress as a corporation.

The second area we focus on is thought leadership. Most people in fintech are successful because they sell what’s in between their ears.  We want our clients to get known for solving problems or addressing bigger issues than just the features of their product.

Lastly, you want to capture customer success stories. There’s nothing more important to a fintech than being able to demonstrate how you’ve helped a bank, credit union, or mortgage company do something really well.”

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WorldFirst’s Mike Ward: ‘There are alternatives to the incumbents’

WoldFirst's Mike Ward

This week’s guest on the podcast is Mike Ward, the chief revenue officer of WorldFirst, which is a strong competitor in the international payment and money transfer industry. We discuss why historically it’s been so hard, expensive, and frustrating to move money around the world and how new financial technology firms like WorldFirst have improved the experience.

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Below are highlights, edited for clarity, from the episode.

Why people feel it’s so hard move money internationally
“There are two reasons why people still feel like it’s hard to move money around. The first is that they’re probably still using their banks. We believe, in most markets around the world, banks own 85 to 95 percent of the market share in money transfer. The banks have been trying to incorporate technology and make transactions easier. But with an incumbent, you still have to go into the branch and talk to a teller. The teller is a generalist and not an FX expert. You have to fill out a large form and pay high fees.

The second reason is that most people and businesses don’t realize there are alternatives. Financial technology companies have disrupted and changed the transaction in terms of speed, price, and complexity.”

Financial technology begins to disrupt banking money transfers
“The original approach to competing with banks in money transfer probably began 25 to 30 years ago. We’re going to compete against the banks with pricing and service. Travelex would be a good example. To them, service was picking up a phone. Have a matter expert, not a generalist, behind the counter. They’d have better pricing because Travelex would go out and make a market and trade with the big banks. Higher volumes resulted in better pricing Travelex could pass on to their customers.

Then technology came and said let’s make technology core. Let’s not have feet-to-the-street sales people running around to land one customer at a time. Let’s not have it phone-based. We want our technology to solve the issues, answer questions, and conduct the transaction. That’s really what customers want. They don’t want to talk to someone to manage the transaction. The next wave of disruption to banking over the past 10 to 15 years created an interesting dynamic as we’re seeing a lot more collaboration between fintech and banks.”

Growth in the industry
“Consumers are 20 percent of our business. Those needs come and go and we need to continue going after the next client. It’s a good business but there’s a lot of competition out there, like Transferwise. Corporate customers and e-commerce is very big for us. In the U.S., a lot of people still deal with the banks. Many owner/operators of businesses don’t understand currency exposure of working internationally. If you look at e-commerce, growth is being driven by e-commerce marketplaces you’ve never even heard of.”

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Zions Bank’s Alex Jimenez: ‘Most bank innovation programs are just innovation theater’

Zions Bank Alex Jimenez podcast

For Alex Jimenez, vp at Zions Bank, the biggest change in the industry has been the reduction in paperwork. “Back in 1999, I remember working on projects to figure out what we were going to do once paper checks were going to be phased out,” he said.

Jimenez joined this week’s Tearsheet podcast to discuss how mobile and digital banking has changed, how to define innovation and how incumbent financial institution should begin to innovate.

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Below are highlights, edited for clarity, from the episode.

 

Defining innovation
“I’ve been having these discussions about innovation over the past couple of months. I wrote a blog on the topic and since then, the discussion has gotten more heated. A lot of people define innovation as any type of change or improvement. I don’t define it that way. That may be process improvement, but innovation really is taking a fresh look at a problem and coming up with a new approach to a solution.

There are some real dramatic examples, of course, like the Model T and iPhone. We haven’t really had examples like that in financial services. Mobile banking is really online banking over the phone for many banks. Checking accounts are still checking accounts, with different bells and whistles. There have been some innovation in channels but not really in products. Most banking innovation programs I’ve seen are just innovation theater.”

How a bank should approach innovation
“The biggest issue in innovation is defining the question and not necessarily getting the answer. A lot of people make an assumption that a lack of innovation is the root of the problem and then try to solve it. They’ll have a brainstorming session, come up with an idea, and that’s their innovation. Most of the time in innovation should be spent on the question. Is this the real question? Is this the real problem or are there underlying questions below that we need to answer?

Once you define the question really well, then you can brainstorm, and come up with and test ideas. I’ve seen a lot of groups define a question incorrectly that doesn’t solve the problem and what they end up doing fails. Spend a lot of time with a process that’s very specific in defining the question and then you can begin to innovate.”

 

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Jo Ann Barefoot: ‘If regulators can tilt fintech, they’ll be able to tilt all of finance’

For Jo Ann Barefoot, regulation can be sexy. The CEO of Barefoot Innovation Group, which advises firms on tech and regulatory issues, says she has “set the task for myself of trying to help adjust the regulatory world to fintech.”

Barefoot, who is also Harvard University’s John F. Kennedy School of Government’s Center for Business & Government and was the first female Deputy Comptroller of the Currency, also hosts Barefoot Innovation podcast.

“I feel our regulatory systems aren’t built to optimize the opportunities and manage the evolving risks. To do that, you have to connect people and pull them out of their silos. A podcast is a great way to go across a great big wide ecosystem and get people listening to people they might not ever be in the same room with,” she said on this week’s Tearsheet podcast.

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Below are highlights, edited for clarity, from the episode.

 

The role of startups in the financial ecosystem
“I have no doubt that fintech startups are changing the banking industry. What shape that will take long term, no one really knows. Most of these startups won’t replace banks — there will be much more of a merging and mixing of the startup technology with incumbents. Banks that don’t change, though, will be facing tremendous competitive risk. Startups bring a much better user experience and many are geared to millennials, which is now the largest generation in the U.S. They’re using data differently. AI and big data are transforming finance. Banks have a lot of data that’s locked up because of their old IT systems.”

The career trajectory of a former regulator
“I went to Washington D.C. straight out of college. I was 20 years old. I had a couple of boring government jobs. I got started in finance after working briefly in HUDD when I went to the Federal Home Loan Bank Board, which doesn’t exist now but was the savings and loan regulator. That got me started on technology issues. I was recruited from there to the National Association of Realtors and then to the Senate Banking Committee where I thought a lot about public policy.

I then started the first of my companies and sold it to KPMG, becoming a partner and managing director. I’ve worked for many years in these regulatory issues and had my own hand in crafting public policy on consumer protection and inclusion. I don’t mean to criticize the past but we’ve built a huge edifice of organizations but they’re not working very well. Look at the financial crisis — people were not well protected even after they received all the required disclosures. They didn’t understand what they were getting. There are 80 to 100 million people in the U.S. who don’t have access to mainstream financial services. It doesn’t matter whether we did the best we could in 1969. We know we can do better today with new technology.”

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U.S. Bank’s Dominic Venturo on creating a model for innovation

US Bank's Dominic Venturo on fintech innovation

This week on the Tearsheet Podcast, you’ll hear from U.S. Bank’s chief innovation officer, Dominic Venturo. Dominic describes what’s prompting banks to innovate and how U.S. Bank approaches innovation and judges its own success, including his team’s KPIs. You’ll also hear his take on whether the senior innovation role is just a flash in the pan or will be a key part of banking leadership out into the future.

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Below are highlights, edited for clarity, from the episode.

Why are banks focusing on innovation?
U.S. Bank has a large payments business, which makes us kind of unique. Because the size of our payments business and the innovations happening in payments, we started the innovation group about 10 years ago focused solely on the retail payments side. We began to build out a practice by looking what was happening in fintech and emerging technology. Our original objective was to change the paradigm around how we did product development and to test and learn, fail fast, and hopefully less expensively for new things that weren’t quite well known. We then expanded that to the rest of our payments business lines and a couple of years ago, we expanded the innovation group to the rest of the bank.

U.S. Bank’s brand of innovation
Every institution innovates differently. Our approach is to work with the businesses to understand their objectives and strategies. We want to keep a long-term eye on emerging technology and how consumers and businesses interact with technology. We’ll blend that into the product development roadmaps for the businesses. In some cases, emerging technology will look like it has a lot of potential but then you really have to see how it applies to a business, whether it solves a customer problem or pain point, and whether it can scale to a company our size. I don’t know if this is different than others, but it’s definitely our approach.

Things like design thinking and empathy building have been built into our practice. We’ve also evolved the way we’ve handled research. We’ve done ethnographic studies on our customers and use that to identify pain points and future problems to solve. This model isn’t unique to innovation but it may be in financial services in general and banking in particular.

How do you judge success in innovation?
The first thing we do is ask what problem we’re solving. If you’re not actually solving a business problem, it could just be a shiny new object that’s interesting only to us. The next thing is to think about the technical feasibility and product performance. Early on, we could do this as a proof of concept to just prove whether the technology does what it promises to do. We then check to see if it’s scalable and can be run at the enterprise level. Lastly, we check to see if the behavioral changes occur that we expect to happen.

All along that journey, there are different dates we use to measure and check to see if we’re reaching our desired objectives. If we’re not, we want to know that early so we don’t continue to invest time and resources. That’s back to the fail-fast principle. When we look longer term, at the portfolio level, we’re measuring our throughput — how many new ideas are coming into the idea funnel and are being evaluated. Of those ideas, we see how many are turned into POCs or pilots. And once you get into the pilot phase, we measure how many of those are ultimately converted or commercialized into a product or a feature of a product. If we’re generating enough good ideas, we should see a fair level of conversion at the portfolio level.

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Inside the war for fintech talent with untapt’s Ed Donner

There’s a serious shortfall for technology talent in financial services and fintech. untapt‘s CEO Ed Donner estimates there are 120,000 open roles for technology positions and that’s just in the U.S. alone. Globally, that number rises to around 400,000.

Donner joins us on this week’s installment of the Tradestreaming Podcast as we discuss the war for fintech talent, how top fintech companies build successful teams, and the role for artificial intelligence in matching talent with job openings.

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Below are highlights, edited for clarity, from the episode.

Financial services are hungry for technology talent
Hiring is always painful. Hiring technology people is particularly painful. Hiring tech people in fintech is especially acute for two reasons. First, the demand for tech talent in financial services and fintech is insatiable, off the charts. We’ve estimated there are an estimated 120,000 open technology roles in fintech in the U.S. alone. Globally, there are around 400,000 technology positions that need to be filled in our industry.

In addition, fintech also has something of a brand problem with millennial software engineers. They know what it’s like to work at Amazon, Apple, Facebook, and Google, but they don’t understand the interesting, exciting problems being worked on in finance. It’s a perfect storm of incredible demand with people going elsewhere and in the middle, you’ve got hiring managers pulling their hair out trying to attract engineers.

What successful firms do to lure top talent
Some of the best approaches to hiring we’ve seen are when companies recognize that hiring is a first-class problem they need to solve and put it at the top of their agenda. People sitting in the C-suite need to focus on bringing in talent. Companies really need to take time to get their brand out there and tell the story of the interesting problems they’re working on. Some hiring managers think narrowly, with preconceived skillsets of what they’re looking for. Successful hiring managers think broadly about the tech talent they’re willing to bring in. It’s the old adage that “A players hire A players”.

Making decisions quickly across the company is also really important. The current market doesn’t support poor communication with candidates. Candidates kept waiting will quickly find a home elsewhere and be taken off the market. Everyone across the company needs to make decisive decisions and communicate well with top technologists.

Fintech job descriptions are a way to stand out
Some of it starts with the job description, with the time you spend to articulate your value proposition to the tech people you’re reaching out to. It needs to be something thoughtful, exciting, and reflects your culture. That’s something Google is very good at and something historically that large financial services firms haven’t really focused on.

Look through tons of jobs descriptions and you’ll find “problem solving skills required”. Great, that tells me a lot. Spend the time and energy to describe what the person will be doing everyday in his new role. Really sell the role to top talent and explain the problems you’re solving. On untapt, hiring managers can record a short video that introduces themselves, their team, and the role they’re hiring for. We find it’s an effective way to make that personal connection and gets your initial message across.

What skills are most in demand in fintech?
Things have been changing recently. There are three areas I’d talk about. The first of which is software engineering. Within  this category, we’re seeing a shift in skillsets to more modern programming languages, like Python and Javascript. Next, we’re seeing an emerging profession around data. The data scientist is becoming the heart of many businesses. There are really two different roles here: the data scientist, who comes from a math and artificial intelligence background who knows how to code and a data engineer, who comes from a computer science background but knows about math and statistics. The two of them typically partner together to build data-centric solutions for financial services.

The third category is really emerging and it is a hybrid digital role. These are roles that roll up to the business and require an understanding of the digital space and knowing how to implement it in the business. These roles are on the rise and I expect to see them more in the future. Traditional front office and business roles will have to have this digital component.

 

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Brandeis University launches online master’s program in financial technology

Financial technology has now become big enough to command its own master’s program.

Brandeis University was among the first to launch an online financial technology master’s degree last fall. The M.S. in digital innovation for fintech — a two-and-a-half year, specialized program aimed at working professionals — may be a sign the field is entering a new phase in its development.

The Brandeis program, which has a tuition fee of $34,000, offers a mix of technical and business development training. Students develop a capstone project — a business idea — with support of a mentor who works in the field.

“We have an interdisciplinary focus — we think about fintech through the course of time,” said lecturer Sarah Biller, who has worked in finance and financial technology for over a decade. “It’s a combination of quantitative skills, and a lot of fintech revolves around the ability to identify and handle large sets of data.”

The curriculum was developed in partnership with State Street and Bottomline Technologies, said Ellen Murphy, director of program development for graduate professional studies at Brandeis. Although the program has two students currently, Murphy said she expects interest to grow.

Formal degree programs represent a new era for the discipline, despite a lack of consensus on their ability to churn out innovators, say people in the field.

“My initial reaction was ‘wow it must be peak fintech,’” said Ryan Gilbert, a partner at Propel Venture Partners. “The concept of doing something at an accredited institution and getting a degree rather than a certificate represents a big shift.”

However, Gilbert said, a formal, accredited course may be unnecessary for many people wanting to get into financial technology. Instead, he said that aspiring financial technology workers can focus on their strengths and make use of existing development programs, conferences and online resources.

“Go and find the key area of advantage (for you) — be a great software developer, marketer or lawyer,” he said.

One area where Brandeis could make inroads is executive training, Gilbert said.

“There’s an opportunity for Brandeis and others to pursue the executive education space, but executive education is not going to be foundational for anyone who wants to break into this market,” said Gilbert.

Others feel that the growth of financial technology degree programs gives the discipline added credibility.

David Sica, a principal at venture capital firm Nyca partners, said programs like the Brandeis one could encourage legacy institutions like banks to take the field more seriously.

“This is all part of maturing,” said Sica. “You want more people to be fluent in these concepts.”

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How financial tech startups are reaching out to low-income Americans

The term “financial technology” may evoke images of wealthy sophisticates using their phones to do their banking and manage investments. Recent data shows that adoption rates skew toward younger urbanites. But financial technology companies like WiseBanyan are looking to new ways to reach lower-income customers, including those who don’t even have a bank account or use payday loan services instead of traditional accounts.

The market is big: According to a Federal Deposit Insurance Corporation study, in 2015, 7 percent of the U.S. households were “unbanked,” meaning no members had a bank account. Unsurprisingly, unbanked rates were higher among low-income customers, and outreach to this segment of the market has been a challenge for the financial services industry as a whole. Among the reasons cited for not having a bank account were insufficient funds and high fees.

The Pew Research Center defines lower-income households as those whose incomes are less than 67 percent of the American median household income, roughly $36,000. This segment of the population, according to Pew, is about a third of the U.S. population. Industry watchers say the traditional banking system isn’t designed for lower-income customers, creating space for financial technology companies to fill the gap.

“Financial technology offers the potential to better serve consumers on a host of issues where current products offered by banks either don’t meet the needs or the products offered by banks are at very high cost,” said Aaron Klein, economics fellow at the Brookings Institution.

Financial technology companies reach lower-income customers through easier access to money, credit and lower-cost services, he said.

One area where lower-income customers haven’t traditionally been considered is investment planning, often called “wealth management.”

WiseBanyan, a robo-adviser app, offers automated investment advice after analyzing its customers’ financial goals. Unlike traditional brokerages, it allows customers to deposit and withdraw without fees, regardless of income category. CEO Herbert Moore said the app’s goal is to reduce barriers to entry to allow individuals of any income category to achieve their financial goals.

“As a firm, we believe that people of any income or asset level should be able to achieve their financial goals,” he said. “We can help folks who would otherwise not be offered a service.”

Moore said a quarter of his 23,000 customers have incomes under $50,000. The app’s revenue stream comes from value-added services, including a fee-based tool that helps users look for tax deductions. These types of money management tools could potentially benefit a large swathe of the American population.

Legacy banks, however, note that low-income customers can take advantage of specially-tailored products to meet their needs. These include including low-fee accounts, like the Citi Access Account, and prepaid visa cards that offer many of the features of checking, like Chase Liquid or PNC SmartAccess prepaid visa card. Citi Access Account customers pay a $10 monthly fee that can be waived if they meet certain conditions, while Chase Liquid and PNC SmartAccess cards both cost around $5 a month.

“Our goal is to get people who are out of the mainstream— often for reasons that aren’t their own fault— to give them the tools they need to get back in the mainstream and hopefully become PNC customers,” said a PNC Bank spokesman.

Still, industry watchers say that financial technology companies have an opportunity to fill a void by offering banking and financial services to lower-income customers, said Courtney Robinson, policy counsel at the Center for Responsible Lending, a non-profit whose mission is to ensure a fair, inclusive financial marketplace for borrowers. “There is a gap that’s being filled for lower income borrowers, borrowers of color.”

Despite the advantages that financial technology companies offer, Robinson stresses that the lending space among startups still skews towards higher-income borrowers, and customers still need to be vigilant against high fees and lending rates.

“While some are masquerading as something different or unique, they’re offering almost payday loan-like prices,” she said.

For legacy banks, partnering with financial technology entrepreneurs may be the best way forward to enhance access. Through a $30 million contribution to a five-year partnership with the Center for Financial Services Innovation, for example, Chase aims to support financial technology innovation through funding, mentorship and support for early-stage entrepreneurs.

“It’s going to be us working together that’s ultimately going to reach low-consumers,” said Colleen Briggs, executive director of community innovation at JPMorgan Chase. “That’s how we’ll move the needle.”

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WTF is conversational banking?

It’s often said that a conversation is the best starting point for a fruitful relationship. But is that the best way to work with your bank? Maybe, but not in ways you may think.

Until recently, “conversational banking” may have required talking to a bank employee at a physical branch or on the phone, and possibly getting stuck navigating endless voice menu choices. But increasingly, it can mean interacting with a bank through a chatbot on an instant messenger platform. So, WTF does “conversational banking” really mean?

What is conversational banking?
Conversational banking means interacting with a non-human about your finances, whether it’s checking your balance, finding out how much you spend on groceries or developing a budget.

“Conversational banking is about managing your financial life through voice or text,” says Keith Armstrong, co-founder of Abe, a chatbot that currently works through Slack or SMS messaging to monitor income, expenses or set a budget.

Is this another money management app?
No. While you may need to download apps to let the technology work on your device, conversational banking is about using chatbots to text or speak questions or commands.

“Consumers don’t download apps anymore; phones have become incredibly valuable real estate,” says David Sica, a principal at Nyca Partners, a fintech venture capital firm. “Banks should be able to interact with customers where they’re spending their time, and they’re spending time in chat.”

For instance, Finie, a virtual assistant developed by Ann Arbor, Michigan-based Clinc, is designed to be used on top of people’s existing apps. Clinc CEO Jason Mars says the company’s aim is to roll out the technology with several major U.S. banks by the end of the year.

How does it work?
Many of these bots are instant messenger chatbots that interact with the user’s bank account. Abe, for example, connects to a bank through Yodlee, a financial data provider, using an encrypted token. These bots can tell users how much money is in their account, how much they spent on a particular type of expense and possibly make a budget.

chatbotimage

Is this just a fancy way to say you’re using Siri or Amazon Alexa to manage your banking?
Conversational banking actually goes further than Siri or Amazon Alexa because it lets you communicate with the chatbot as if it were a real person. Advances in artificial intelligence have made financial chatbots able to ask and answer questions in familiar conversational language, according to Armstrong.

OK, fine. But isn’t it easier to just chat with a real person?
App developers say conversational banking can get answers faster than a human could. Here are some questions that Finie was able to answer, in a demonstration on the Clinc website:

  • What are some of the most expensive transactions that I’ve made recently? (Finie responded with a chart of the most of the most-highest-priced transactions.)
  • Can you show me a breakdown of my spending in the last three months? (Finie provided a dollar figure and a breakdown of expenses by category.)
  • I want to spend a hundred dollars on a fancy dinner tomorrow night. Is that all right? (Finie analyzed the user’s spending habits and visualized them in a chart, and decided that based on the user’s spending habits, it would be OK to spend that much.)

Financial chatbots use predictive analytics to push out real-time, informed responses, says Sica.

For some sticky issues, it may be easier to deal with a chatbot than a real person. For example, when a bank is collecting debts, Cica says talking to a bot is a lot less intrusive than dealing with a collection agency calling you up and hounding you to pay your bill.

“Chatbots can be incredibly powerful,” he says. “If done properly, if you’re in collections and if you want to have a hard conversation, it’s much less embarrassing over text message.”